Uber’s Lawlessness Began With Good Intentions; Could It Have Been Saved From Going Wrong?

UberUBER
has long had a reputation for a firm that played fast and loose with both ethics and the law. Recent leaks and reporting paint a more full history of how those activities persisted, driven by founder and early CEO Travis Kalanick. At the same time, Uber’s original defiance of archaic taxi monopoly laws was good for the world, and so it’s worth examining that history.

It seems likely that because Uber began with a decision to break bad laws that this approach may have led the company into an unstated belief that laws in general (rather than just bad laws) were made to be broken. Other companies that also defied those bad laws, like Sidecar and LyftLYFT
, did not continue a pattern of ethical and legal failures, so clearly there were personal failings in Uber management — it’s not simply that only an inherent scofflaw would build such a company.

Most cities had (and still have) taxi monopoly laws and heavy taxi regulation. Cities set prices, limit the number of cabs and limit who can drive them and who can own them. New York City famously issued around 13,500 “medallions” which gave the owner the exclusive right to pick up passengers hailing a cab on the street. These medallions could be resold, and went for up to $1M before Uber. Today they go for around $100K. (It should be noted that it is commonly alleged that the rise to $1M was driven by forces trying to inflate the price. Until 2005, medallions were stable under about $200K.)

When these systems were put in place there were valid reasons for them. When you are hailing on the street, you can’t shop for a cab, you take the first one, and so you want to know its price and minimum quality. Not all cities are that way, and in those you must carefully check the prices before you get in, it’s not uncommon to be cheated. Monopolies stopped competition and assured income for drivers. They also hoped to reduce clogging the streets with cabs.

In some places, rules controlled who could own a taxi, requiring some fraction of cabs to be driver owned. This got so extreme in San Francisco that the dispatch companies you called for a cab were not allowed to have a contract with the cabs they sent you. This meant that you called a cab to your house, and the driver saw a hail on the way there, they took the hail, which was right there, and left you in the lurch, having no contract to serve you. It was estimated that half the time you phoned for a cab, it did not show.

It was into that world that Uber was born, initially with the service now called UberBlack. Uber contracted with more expensive limo drivers. They always came, the service was good quality if more pricey, and the UI was easy and frictionless. Customers loved it but it violated the old world’s rules. When you are summoning a cab with a smartphone, you can pick the company and its prices and quality in a competitive market. You can shop, and so the city’s interest which was created because shopping on the side of the street was impossible vanished. Regulators didn’t want to give up their power, and taxi operators didn’t want to either. This was Uber’s first fight.

While Uber was doing UberBlack, Sidecar started a service with ordinary people driving their own cars but acting as taxi drivers. Lyft followed suit, and Uber later introduced a similar product known as UberX. In those early days, this was clearly illegal as well. These early iterations pretended they were not a taxi service, but rather this was just somebody already out driving who would happily pick you up and share the trip. As such, the bogus term “ride share” was applied to support this fiction. In some cases, the fee you paid was a “donation” because it was not legal to run a for-pay taxi service. (If you didn’t donate, you would quickly get a reputation as not doing so and not get picked up again.)

It is not a ride share, that was just a nice fiction, but the term persists to this day. UberX has become the main part of Uber and it’s just like a taxi service, except using a smartphone. But all of this was entirely against the existing laws — but those laws were outdated, and the public is very pleased to have services like UberX. The regulations had aged, and were only protecting entrenched interests. It’s good that some companies moved to break them, and fast, eventually getting them rewritten in most places. Some cities still ban TNC/Rideshare, and they are harder to get around.

Not everything in the regulations was obsolete. The city retains an interest in not having too many taxis clog the streets and certain other factors. However, the regulators were unable, for various reasons, to quickly adapt and get rid of the bad rules and modify the ones that made sense to fit modern reality. They fought the change to defend their turf, rather than the public interest. The taxi incumbents fought the changes to protect their incumbency.

There are many criticisms of other issues around Uber and the gig economy when it comes to wages and working conditions. But these are independent of whether there should be a taxi monopoly with everything, included prices and user interface, set by the government.

Uber’s fight against the old rules appears to have created a culture at the company to ignore any rule they didn’t like, or at least this is alleged. Perhaps it was already present in its founders. Sunil Paul, founder of Sidecar, says he decided to shut down Sidecar because he could not face up to an Uber that was super well funded and willing to play nasty tricks to crush him in the market. Lyft built its (smaller) business with a focus on trying to treat drivers better.

We’ve seen protests against Uber from cab drivers. We’ve seen protests both for and against it from Uber drivers. We’ve seen cities embrace it and reject it. The story provides examples of both how to do it and how not to do it when existing rules are archaic and slow to change. Regulators will never change at the speed that entrepreneurs work at, and entrenched interests protected by regulations will work to stop even rational change. Faced with no solutions, entrepreneurs will feel pressure to change things even faster, or to get rid of the rules that are not archaic. There is no easy fix, unless there is a system that can quickly revise regulations which is beholden to no incumbent stakeholders nor the entrepreneurs, and no such system exists today in most places. A rare exception was the early internet, but we may not see that approach again, because of course it didn’t do everything perfectly and now people will focus on the mistakes.